Centralized
Web3 / cefi
Centralized systems concentrate decision-making authority and control in a single entity or small group rather than distributing it across a network. This organizational model is common in traditional finance, where banks, exchanges, and payment processors serve as intermediaries that validate transactions, manage user accounts, and enforce rules. While centralization enables rapid decision-making and clear accountability, it also creates single points of failure and requires users to trust the controlling entity with their assets and data. Example: Coinbase operates as a centralized cryptocurrency exchange where the company controls user wallets, enforces compliance policies, and determines which assets users can trade. All transactions flow through Coinbase's servers, making the platform a central authority. Why it matters for CeFi: Centralized finance institutions provide regulatory oversight, customer support, and insurance protections, but they also require KYC verification and can freeze accounts. Understanding centralization is crucial for evaluating counterparty risk and deciding whether to use custodial services or self-custody solutions.
Explore the full Web3 Glossary — 2,062+ expert-curated definitions. Need guidance? Talk to our consultants.